Pound to Euro Forecast: Fresh Gains Predicted for the GBP vs the EUR Exchange Rate

March 20, 2015 - Written by John Cameron

STORY LINK Pound to Euro Forecast: Fresh Gains Predicted for the GBP vs the EUR Exchange Rate

Support for the Pound Sterling (currency:GBP) surged during yesterday’s session follow a poor showing the previous day.

The Sterling euro exchange rate had slumped to as low as 1.3710 GBP EUR early on Wednesday evening following comments from the US Federal Reserve Chair Janet Yellen suggesting that an American interest rate increase remained a fair way off.

The key element of the Fed’s commentary which accompanied its policy statement saw the US central bank drop the word ‘patience’ from its guidance on when American interest rates might be hiked. This key part of the Fed’s policy missive saw ‘patience’ replaced by advice that ‘further improvement’ would be required in the tone of US economic statistics, and in particular those from the nation’s labour market, before it would countenance a tightening of policy.

Ward McCarthy of Jeffries explained that, ‘at the current juncture, the timing of the lift-off is still indeterminate and will depend upon the inflation data. The policy statement eliminated the use of 'patient' in forward guidance, but the FOMC also described the new forward guidance as being ‘consistent’ with the prior forward guidance.’

Either way, Janet Yellen ruled out any increase in US interest rates for her Bank’s April meeting but left the door wide open for a policy tightening at any subsequent get-together. The next Fed meeting following April is June’s and many analysts now suggest that, jobs data allowing, this may be the date for the first Fed hike in a new rate increasing cycle.

Initially, the news from Washington prompted a sharp move higher for the euro US Dollar exchange rate – the EUR USD pair had climbed by well over 2% on the day by the latter part of Wednesday’s session. Arbitrage funding saw the euro (currency:EUR) therefore record gains against Sterling and it was this pronounced flow of funds which sent the GBP EUR exchange rate sharply lower during the early hours of Thursday morning. However, on closer reading, investors noted that American rates are still likely to be heading Northwards by the middle part of next year and moved back into the Dollar. Analysts forecast that the upward trend for GBP EUR may now be re-established.

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TAGS: American Dollar Forecasts Currency Predictions Euro Forecasts Euro Forecasts